I thank the committee for the invitation to engage about the general scheme of the finance (local property tax) (amendment) Bill 2021, which I published at the beginning of June. I published the general scheme with a view to having the Bill enacted before the summer recess. This is necessary to enable the Revenue Commissioners to make the essential technical and administrative preparations to implement the various changes to the local property tax, LPT, regime that are contained within the Bill before the valuation date of 1 November 2021.
Perhaps the most significant proposal in the Bill is a revised method for calculating local property tax liabilities. The 2019 review of the local property tax, which the committee is aware of, analysed five scenarios in detail, broadly based on a €500 million target yield excluding any local adjustment factor, LAF. The scenario analyses were based on a data set assembled by the Revenue Commissioners from the property price register combined with Central Statistics Office and Revenue data and Department of Finance forecasts. The analyses are based on economic modelling and the predicted outcomes can offer only indicative rather than certain conclusions. The analyses can provide only a broad picture of the estimated effects on taxpayers.
A key challenge encountered during both the work on the review and the more recent analysis is the significant variation of property price increases geographically, especially the uneven pace and rate of increases in residential property values throughout the country since the original valuation on 1 May 2013. A key principle that informed the design of the local property tax in 2012 was simplicity for taxpayers and for Revenue, which collects the tax. In that regard, the new basis for calculating local property tax liabilities builds on the existing band structure and is a variation of scenario 5. The new approach maintains the number of bands at 20. Band 1 is expanded from €1 to €200,000 and band 2 contains values in the range €200,000 to €260,500. The LPT charge is fixed at the current charge for bands 1 and 2, which are €90 and €225 respectively. The other bands are widened by 75% to create bands of €87,500, which is an increase from current range of €50,000. For properties in bands 3 to 11, a mid-point rate of 0.1029% will be charged.
There is currently a higher rate for properties valued above €1 million, with the first million charged at 0.18% and everything above at the higher rate of 0.25%. Under the proposed variation of scenario 5, it is likely that owners of high value properties, meaning values over €1 million, would benefit from reductions in LPT liability, due to the widening of the bands and the reduced rate. We therefore have a higher rate which will apply to properties above €1 million, by charging at a higher mid-point rate on bands above €1.05 million and introducing a third rate for properties valued above €1.75 million. Therefore properties in bands 12 to 19, between €1.05 million and €1.75 million, are charged a mid-point rate of 0.1029% on the first €1.05 million and 0.25% on the balance over €1.05 million.
Properties in band 20 are charged on individual property values as before. In other words, the charges are 0.1029% on first €1.05 million, 0.25% between €1 million and €1.75 million and 0.3% on balance. All new residential properties built between valuation dates will be retrospectively valued as if they had existed on the preceding valuation date. New properties becoming liable for the local property tax at the next liability date, which will be the following 1 November, will be valued at the previous valuation date of 1 November 2021. Revenue will provide assistance to property owners to determine this value.
Property valuations will be reviewed every four years, rather than the current three years. This will provide a balance between the timely capture of changes in the property market and the need to limit compliance and administrative costs. It also assists the regular addition of new properties into the local property tax charge. From its inception the local property tax has been underpinned by the principle that keeping the number of exemptions low helps to keep the tax rate low for those who are liable to pay it. I have decided to allow the exemptions for first-time buyers and homes in ghost estates to lapse and to phase out the exemption in respect of pyrite damaged properties. In recognition of the enormously difficult situation facing homeowners affected by pyrite and mica in counties Donegal and Mayo, I am providing for a similar temporary exemption from local property tax for homes in those counties that have been damaged due to the use of defective concrete blocks in their construction and eligible for the defective concrete blocks grant scheme.
I propose to implement the 2019 review group recommendation that the income thresholds for local property tax deferrals be increased from €15,000 to €18,000 for a single owner and from €25,000 to €30,000 for a couple. I am also reducing the rate of interest on deferred local property tax from 4% to 3%.
I believe the measures proposed for the Bill will fulfil the programme for Government commitments and will secure the future of the local property tax although in a reformed structure that better suits our current national needs. I thank the committee.